Poor professional advice from third parties or consultants has led to 16% of small and micro businesses losing money, according to new research published by Direct Line for Business.
This equates to around 320,000 enterprises.
Professional advisers, such as accountants and property consultants, are warned that they could be pursued for losses incurred as a result of giving substandard advice. The research reveals that advisory consultants and other such firms have cost Britain’s small and micro businesses an estimated average of £20,842 in the past 12 months due to inadequate professional consultancy, with 19% claiming to have lost between £50,000 and £100,000. In total this would equate to £6.4 billion lost by small and micro businesses as a result of poor advice in the past 12 months.
IT consultants were identified as the professionals most likely to give damaging advice. 44% of businesses whose operations were affected by bad advice blamed their IT consultants. 34% of businesses suggested it was poor advice on management issues, while 32% claimed incompetent marketing consultancy negatively impacted their business.
Advisory sectors that most negatively impact businesses
| 1 | IT consultancy | 44% |
| 2 | Management advice | 34% |
| 3 | Marketing consultancy | 32% |
| 4 | Property consultancy | 23% |
| 5 | Communications consultancy | 16% |
| 6 | Accountancy | 9% |
| 7 | Advertising consultancy | 8% |
| 8 | Legal advice | 6% |
Direct Line for Business warns that not only should consultants providing advisory services consider the reputational and financial impact of poor advice to their own company, but also a number of unintended effects on the businesses to which they provide advice. 46% of affected companies suggested they were forced to lay off staff because of poor professional advice. While 39% were forced to scale back or halt expansion plans, 34% needed to take out a loan to prop up their business. 28% highlighted that the survival of their business was put in jeopardy.
How poor professional advice affected small and micro businesses?
| 1 | Forced to lay off employees | 46% |
| 2 | Forced to scale back or halt expansion plans | 30% |
| 3 | Forced to take out credit | 34% |
| 4 | Put business survival in jeopardy | 28% |
| 5 | Forced to resolve client/customer issues | 28% |
| 6 | Lost clients | 16 per cent |
| 7 | Forced to sell company assets | 2 per cent |
| 8 | Other | 1% |
Nick Breton, head of Direct Line for Business, said: “Our research clearly highlights the devastating effect poor professional advice can have on small and micro businesses. However the impact on an advisory firm that is facing litigation can be just as shattering. For those providing advisory services, it is important to recognise that issues can occur and clients could pursue them for compensation.
“Advisory firms can protect themselves in case an issue does arise from the advice they give by taking out professional indemnity insurance.”